For anyone starting a business, there are two broad business models to choose from. Business to Business (B2B) and Business to Consumer (B2C) divides the target audience that your product or service will be catering to.
What is B2B?
In the B2B model, your product or service is sold to another business. The buyer in a B2B transaction is not driven by individual demand; instead, the product or service is meant for institutional use or eventual retail sale. For instance, an online business platform that connects organic food suppliers and food wholesalers is an example of a B2B business. Similarly, a firm providing payroll processing service to a corporate entity is also a B2B service.
What is B2C?
The B2C model involves the sale of a product or service to the end-user. B2C online products and services can be everyday items, like a beauty products platform, or an online repair service provider. These products and services are meant for the individual consumer. When it comes to online business, Amazon and similar e-commerce platforms are at the forefront. Due to uncountable consumers, B2C business has a vast market and is often more competitive.
Due to the difference in market size, the B2B market involves fewer transactions than the B2C market, but higher sales volume. If you consider only the e-commerce, global B2C market size is estimated at $3.67 trillion, whereas the global B2B e-commerce business is valued at $5.7 trillion.
B2B and B2C can co-exist
Although the two business models differ, they are not mutually exclusive. A business can operate both models simultaneously. A common example is the website-based sales of apparel brands that cater to retail consumers. These websites are in addition to their usual B2B supply chain of stockists and wholesalers.
Differences and impact on profitability
Due to the differences in the two business models, the nature of business of a B2B business differs widely from a B2C business. These differences also reflect the influence on profitability. Some of the key differences that make one model more profitable than the other are mentioned below -
1. Different target audience
The B2C market has a large target audience. Anyone, anywhere in the world, who uses your product or service, can be your customer. This is truer with the advent of e-commerce, where your business can reach out to any corner of the world. The reach of a popular B2C product can be much higher than that of a B2B product. On the positive side, if you sell a B2B software package to a company, you will get a high sale as the income would be based on the number of users. However, a personal-use of B2C software has to be sold to many retail customers to generate the same revenue.
2. Customer requirement
In the B2B model, the customer requirement is of much greater importance. A B2B seller would put in extra effort to customise the product as per the requirement of the buyer if required. Going back to the example of software, you would tailor the software design to fit customer-specific features. In B2C businesses, the product or service is more or less standardised. B2B has that room for additional profit if customer specifics are addressed and accordingly billed.
3. Sales cycle
B2C businesses follow a simpler sales cycle, where the customer buys a product and pays for it. There is no interest cost involved, as there are no credit periods. In the B2B model, the cycle from quotation to payment receipt can be quite long, depending on the type of buyer. As a B2B seller, you will be involved in this cycle from the product enquiry stage. The buyer may carry out vendor selection, quotation review, negotiation, and purchase order. The delivery may involve alterations and customisations depending on the customer requirement. Even after the product delivery, the buyer may carry out quality assurance checks and hold payment until the accounts department's approval. To sum up, the sales cycle in a B2B environment can be prolonged and follow a credit period. This can lead to a staggering of receivables and affect profitability.
4. Customer acquisition
The cost of customer acquisition is undoubtedly higher in the case of the B2B model. However, the cost is justified by the high-value transaction and profit per customer. Besides, the customer acquisition cost in the B2B model can yield its benefits beyond one sales cycle. Corporate buyers are unlikely to switch vendors every year. However, the same cannot be said about B2C, where the consumer's taste and preference may vary and similar choices are available. The cost of acquisition in B2C business is low, but unlike B2B, it doesn’t guarantee long-term customer acquisition.
5. Customer relation
Due to the nature of a B2B transaction, there is deeper involvement in the customer relationship between a B2B buyer and seller. A company will select a payroll processing service provider after a detailed selection process. The service provider will invest time and effort in interactions with the potential B2B customer, which will continue during the service delivery. In many cases, B2B vendors are considered to be crucial partners of the company. This results in the longevity of the relationship and more profit for the seller from a particular business relationship. Customer relation is important for a B2C vendor too. However, it is often one-off and need-based. Good B2C customer relation is more about promptness and accessibility, which helps raise a brand’s public profile.
If you are a B2B business, you may get a better opportunity to price your product with higher profitability in mind. B2B products can be customised and are unique, giving you a perfect ground to recover your profits. In the B2C model, your prices are fixed, and there has to be a standardised price structure. The expenses are made as per a pre-defined budget and are accurately considered while fixing the price. Established B2C online organisations use well-oiled pricing strategies to ensure profitability.
7. Sales strategy
B2B sales can have a complex and costly structure that involves consulting, presentation, fact-based data, demos, etc. These are crucial investments that help B2B businesses acquire and retain customers. In a B2C sale, the aim of the seller is a strong supply chain, and effective marketing and advertising campaigns. A B2C online business can be a direct seller like Netflix, a franchise or agency-based services like fast food, or a typical e-store. In all these scenarios, B2C sellers see little impact on their profitability from sales strategies. This is because their strategies can be accounted for in advance and are simplified.
Based on their varying features, it can be concluded that the profitability in either model can be ensured by balancing the cost and pricing. That said, a highly competitive B2B environment may not be able to return higher profit despite high sales, because the pricing would be a constraint. A B2C seller can, however, scale-up growth and profitability through higher sales as the pricing is standard and optimised. In a reverse scenario, a niche B2B product or service can return handsome profit with higher sales.
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Q. How are B2B and B2C businesses similar?
Ans. While talks of B2B vs B2C are quite common, the foundation of the business remains the same in both B2B and B2C. The delivery has to be customer-centric, and the credibility of the brand is important. Both models thrive to provide a personalised customer journey to acquire and retain their customers.
Q. How does the intention of the buyer differ in B2B and B2C?
Ans. A B2C consumer may buy a product for personal demand, aspiration, or just fun. A B2B consumer is driven by organisational goals and objectives. For them, the B2B product should be a valuable addition to their operations and processes.
Q. How does content creation differ in B2B and B2C?
Ans. A B2C consumer is provided with simple and enjoyable content that has good recall value and are relatable. This is prominent in the ad campaigns run by B2C brands. B2B content is aimed at the decision-makers. Therefore, the content generated is generally formal and factual. It should be insightful and convincing in nature.